Gas Prices Make Biggest Jump Since August

U.S. gasoline prices rose by slightly more than 10 cents per gallon in the past two weeks, the biggest jump since last August, an industry analyst said Sunday.

The weighted national average for all three grades of gasoline was just over $1.96 per gallon on Friday, according to Trilby Lundberg, publisher of the biweekly Lundberg Survey, which regularly polls 8,000 gas stations across the United States.

Tight gasoline supplies and rising demand at a time when seasonal environmental regulations cause a price adjustment are responsible for increase, Lundberg said.

"Those regulations have both a cost and supply impact on refiners," said Lundberg. "We get less gasoline out at a higher cost just when we need more of it. Meanwhile, tighter regulations make it tougher for importers to bring in additional supplies."

The nation's economic growth has also increased demand, contributing to the rising prices, Lundberg said.

The average price of gasoline has broken all-time record highs for two months straight, although the average price remains about 90 cents a gallon lower compared to the peak gas price in March 1981 when adjusted for inflation, Lundberg said.

Crude oil prices reached a 13-year high of $40 a barrel on Friday, the highest since Oct. 11, 1990, in the run-up to the 1991 Gulf war. Prices for crude oil and for gas at the pump are unlikely to decline anytime soon, Lundberg said.

The national weighted average price of gasoline at self-serve pumps on Friday, including taxes, was about $1.93 for regular, $2.02 for mid-grade and $2.11 for premium.

San Diego had the highest average price of any city, with self-serve regular selling for an average of $2.25. The average for self-serve regular in California was $2.21.

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Gas Prices

What determines the price you pay at the pump?

Federal, State, and local taxes are a large component of the retail price of gasoline. Taxes (not including county and local taxes) account for approximately 28 percent of the cost of a gallon of gasoline. Within this national average, federal excise taxes are 18.4 cents per gallon and state excise taxes average about 20 cents per gallon. Also, some states levy additional state sales taxes, some of which are applied to the federal and state excise taxes. Additional local county and city taxes can have a significant impact on the price of gasoline.

Refining costs and profits comprise about 14 percent of the retail price of gasoline. This component varies from region to region due to the different formulations required in different parts of the country.

Distribution, marketing and retail station costs and profits combined make up 12 percent of the cost of a gallon of gasoline. From the refinery, most gasoline is shipped first by pipeline to terminals near consuming areas, then loaded into trucks for delivery to individual stations. Some retail outlets are owned and operated by refiners, while others are independent businesses, which purchase gasoline for resale to the public. The price on the pump reflects both the retailer’s purchase cost for the product and the other costs of operating the service station. It also reflects local market conditions and factors, such as the desirability of the location and the marketing strategy of the owner.

In 2000, when the price of crude oil averaged $28.23 per barrel, crude oil accounted for about 46 percent of the cost of a gallon of regular grade gasoline. In comparison, the average price for crude oil in 1999 was $17.51 per barrel, and it composed 37 percent of the cost of a gallon of regular gasoline. The share of the retail price of regular grade gasoline that crude oil costs represent varies somewhat over time and among regions.

Why do gas prices fluctuate?

Even when crude oil prices are stable, gasoline prices normally fluctuate due to factors such as seasonality and local retail station competition.

Additionally, gasoline prices can change rapidly due to crude oil supply disruptions stemming from world events or domestic problems, such as refinery or pipeline outages.

When crude oil prices are stable, retail gasoline prices tend to gradually rise before and during the summer, when people drive more, and decline in the fall and winter, when people drive less. Good weather and vacations cause U.S. summer gasoline demand to average about six percent higher than during the rest of the year. If crude oil prices remain unchanged, gasoline prices would typically increase by 5-6 cents during the summer.

Vents in crude oil markets were a major factor in all but one of the five run-ups in gasoline prices between 1992 and 1997, according to the National Petroleum Council’s study U.S. Petroleum Supply - Inventory Dynamics.

Crude oil prices are determined by worldwide supply and demand, with significant influence by the Organization of Petroleum Exporting Countries (OPEC).

OPEC has the potential to influence oil prices worldwide because its members possess such a great portion of the world's oil supply, accounting for nearly 40 percent of the world's production of crude oil and holding about 67 percent of the world's estimated crude oil reserves.

Rapid gasoline price increases have occurred in response to crude oil shortages caused by, for example, the Arab oil embargo in 1973, the Iranian revolution in 1978, the Iran/Iraq war in 1980, and the Persian Gulf conflict in 1990.

The most recent gasoline price increases are due in part to OPEC crude oil production cuts in 1999. In addition, higher demand from a recovering Asian economy caused more competitive bidding for crude oil supplies in the international market and was a contributing factor to an increase in gasoline prices in 1999.

OPEC once again cut crude oil production in Jan. 2001 to forestall anticipated excess supply in late Spring.

A continuing economic boom in the United States has led to greater demand for gasoline. If demand rises quickly or supply declines unexpectedly due to refinery production problems or lagging imports, gasoline inventories (stocks) may decline rapidly. When stocks are low and falling, some wholesalers become concerned that supplies may not be adequate over the short term and bid higher for available product. Such was the case in late summer 1997, as a demand surge drained gasoline stocks and prices rose rapidly.

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